In this guest post, lawyer Steven Thorn answers frequently asked questions about the Illinois Benefit Corporation Act.
We would like to thank Steven Thorn of Thorn & Associates LLC, a law firm focusing on green, energy, and environmental law, for writing this post, which answers a number of questions that business owners might have about the advantages and logistics of changing your company’s legal status when the Illinois Benefit Corporation Act goes into effect on January 1, 2013.
What is the Difference Between a Certified Benefit Corporation and a Statutory Benefit Corporation?
A statutory Benefit Corporation is the creation of the Illinois Benefit Corporation Act which becomes effective January 1, 2013. The Benefit Corporation is a legal entity like a corporation, an LLC, or a professional corporation. The statute has many requirements, but here are a few highlights. The Act requires a statutory Benefit Corporation to state in its Articles of Incorporation that it is a Benefit Corporation and that it will work for the general public benefit and, if it desires, additional specific benefits. The Benefit Corporation must meet a third party standard and may appoint a Benefit Director. Unless, the statutory Benefit Corporation is certified by B Lab, it may not use the B Lab logo.
In contrast, a certified Benefit Corporation is an Illinois LLC or Corporation that has had its performance evaluated by B Lab. It may use the B Lab logo.
What’s the Advantage of Being a Statutory Benefit Corporation?
First, since a statutory Benefit Corporation has adopted the requirements of the Benefit Corporation Act to pursue the general public benefit (and possibly specific public benefits) the Benefit Corporation has much greater protection from outside parties who would attempt to deflect the company from these goals. These outside parties could include investors who are funding the expansion of the company and receive seats on the Board of Directors or investors who are acquiring the business outright. Second, as statutory Benefit Corporations are approved by the state, consumers will trust this state “seal of approval”, especially given the ever more bewildering world of certifications. Third, states and cities may confer certain advantages to statutory Benefit Corporations. For example, in Philadelphia statutory Benefit Corporations receive a tax break.
What is the Process and Cost for Becoming a Statutory Benefit Corporation?
The State has not yet provided an answer, but the following summary is a fairly safe bet.
- New Businesses: After January 1, a new business may incorporate as a Benefit Corporation by filing Articles of Incorporation stating the corporation is a Benefit Corporation working for the general public benefit and any specific public benefits it chooses ($150 Secretary of State filing fee).
- Existing Corporations: After January 1, an existing corporation may amend its Articles of Incorporation to state the corporation is a Benefit Corporation working for the general public benefit and any specific public benefits it chooses ($50 Secretary of State filing fee) .
- Existing LLC: Unfortunately, there is no direct way for an LLC to become a Benefit Corporation. According to Illinois law, a new corporation must be created and the LLC merged into the corporation (at which time the LLC will cease to exist). This merger can be done in two ways.
- Option 1: First, a corporation is created ($150 Secretary of State filing fee), then the LLC is merged into the new corporation ($105 Secretary of State filing fee), and then the Articles of Incorporation is amended to convert it into a Benefit Corporation after January 1 ($50 Secretary of State filing fees). Total cost $305. This option only makes sense if you wish to do the merger this year.
- Option 2: A new Benefit Corporation is created after January 1 ($150 Secretary of State filing fee) and then the LLC is merged into the Benefit Corporation ($105 Secretary of State filing fee). Total cost $255.
- LLC owners only: Please be aware that this is a new entity; therefore, you have to change all of your insurance policies, bank accounts, etc.!
Mightybytes is proud to be one of the first Illinois companies to become a legal Benefit Corporation. We encourage you to join us in becoming a Benefit Corporation in January, and to sweeten the deal, we’d like to offer you a discount on our services.